Helping Funders Better Understand and Manage Risk
(Illustration by Jean Tuttle for SSIR)
Risk is essential to impact-focused philanthropy. We can’t hope to tackle the immense challenges that drive our missions without understanding the risks we face, balancing them against potential rewards, and (only then) making decisions and managing our efforts accordingly.
Yet few funders approach risk in a systematic way. Few prepare for the failures associated with it or plan for scenarios that may increase it. As Laurie Michaels and Judith Rodin have recently pointed out, “funders and nonprofits agree that 20 percent of our potential social impact is at risk;” nevertheless, “as a sector, most do nothing about it.”
With this in mind, the team at Arabella has been working for more than a year with the Open Road Alliance, as well as the Rockefeller Foundation and other philanthropic leaders, to improve philanthropy’s ability to deal with risk. As previously noted on our blog, we’ve partnered with these organizations to develop a risk management toolkit that funders can use to determine their organizational risk profiles and how to integrate specific financial, governance, and other risk management activities into daily philanthropic practice. If you haven’t yet done so, you can explore the risk management toolkit here.
You can also learn more about risk in philanthropy from a special supplement in the latest issue of the Stanford Social Innovation Review: “Navigating Risk in Impact-Focused Philanthropy.” Produced by Open Road Alliance in partnership with The Rockefeller Foundation, the supplement features seven articles by authors with unique perspectives on risk from across the philanthropic sector—including my own contribution, a look at how funders can use scenario planning to surface invisible risks. As I note in the article, scenario planning isn’t a panacea, but it can help funders think through strategic options and become more agile in responding to unexpected events.
The Arabella team and I encourage everyone with an interest in maximizing their impact—and mitigating their risks—both to read this supplement and to explore the risk management toolkit. We believe that, by learning to take on the right risks and manage them well, we can collectively improve the practice of philanthropy and ultimately deliver more impact at greater scale than ever before.